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The editors of Seeking Alpha have much to be proud of. They also need to take action to address some serious shortcomings.

Created in 2004 by David Jackson, an ex-Morgan Stanley technology analyst, the investor Website is widely read by individual and professional investors. At last count, according to the site, Seeking Alpha attracts about nine million unique visitors a month, an impressive achievement for a financial Website.

Seeking Alpha's content is written not by a staff of full-time salaried journalists but by literally thousands of self-directed investors and other students of the market, many of whom choose to use pseudonyms rather than their real names on the top of their articles. Each day, there are close to 250 fresh articles taking both positive and negative views of stocks and other investments.

Advocates of this high-volume approach to populating an investment Website argue that the "wisdom of the crowds" helps provide greater efficiency to the valuing of stock prices than can be provided by traditional sites.

Indeed this approach got a shot in the arm earlier this week. The Wall Street Journal wrote about an academic study of Seeking Alpha's content over several years. Written by professors at Georgia Tech, Purdue, and City University of Hong Kong, the study found that the site predicted stock returns, as well as earnings surprises, above and beyond what was evident from Wall Street analyst reports and financial news articles.

Seeking Alpha

But Seeking Alpha has also received some troubling press in recent weeks, exposing problems inherent in the site's policy of allowing anonymous contributors. The problems, I contend, also stem from less than stringent editorial standards that need to be tightened up so that Seeking Alpha can do a better job resisting stock manipulators who see the site as an easy mark.

In late January and February, the financial Website, The Street, ran articles that detailed instances in which Seeking Alpha removed at least a half dozen favorable articles about
Galena BiopharmaGALE 2.2099447513812156%Galena Biopharma Inc.U.S.: NasdaqUSD1.85
0.042.2099447513812156%
/Date(1425420000137-0600)/
Volume (Delayed 15m)
:
1565016AFTER HOURSUSD1.85
%
Volume (Delayed 15m)
:
2034
P/E Ratio
N/AMarket Cap
219837164.375858
Dividend Yield
N/ARev. per Employee
124017More quote details and news »GALEinYour ValueYour ChangeShort position
(ticker: GALE) and other biotech stocks after concluding that writers weren't being honest about their true identities. In his January 28 story for The Street, for example, senior writer Adam Feuerstein wrote that a single individual used three different pseudonyms to push articles on Seeking Alpha. After looking into the matter, the Website discovered that a single individual wrote five articles.

Most troubling is that a slew of Galena insiders sold shares of the stock in January that may have gained value, at least in part, because of the favorable but highly suspect articles. From November, shares of Galena jumped from around $2 to over $7 before falling hard to its current $3 price after news of the questionable Seeking Alpha articles came to light.

To its credit, Seeking Alpha was willing to eat plenty of humble pie by running a lengthy and highly detailed article by Richard Pearson, a private investor, who chronicled how he was allegedly approached by an official representing an investment-relations firm employed by two small biotech companies seeking some good press. "I was asked to write paid promotional articles on Galena Biopharma and
CytRx Corp.CYTR -1.8867924528301887%CytRx Corp.U.S.: NasdaqUSD3.12
-0.06-1.8867924528301887%
/Date(1425420000175-0600)/
Volume (Delayed 15m)
:
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177243662.168112
Dividend Yield
N/ARev. per Employee
5882.35More quote details and news »CYTRinYour ValueYour ChangeShort position
(CYTR), without disclosing payment," wrote Pearson, who then decided to short shares of CytRX. (See Read This, Spike That, "An Insider's Tale of a Stock Promotion Plan," March 15.)

The SEC recently launched an investigation into Galena about the matter as the company deals with a flurry of lawsuits.

Here was a Website showing how easy it was for investors to exploit it.

On Wednesday, after learning about the favorable academic study, Eli Hoffmann, the amiable Israel-based editor-in-chief of Seeking Alpha, wrote a piece reaffirming the core principles underlying his Website's editorial mission. At the heart of that mission is the granting of anonymity of writers who request it.

"On a personal level, most SA contributors are not journalists and don't have the thick skin that comes with that profession," writes Hoffmann in his column. "They're serious investors who often shun publicity, and who wouldn't share their ideas with our readers if they felt it could negatively impact their personal lives."

That may be true. But anonymity also has its dangers, which is why it's used by traditional journalists only to extract the most difficult-to-obtain information.

In his article, Hoffmann only seems to view anonymity as a virtue. In fact, it can be a well-protected nest for a writer-investor to pen one-sided and sloppy analysis of stocks. The same writer forced to run his or her name might be more inclined to write a more measured, honest, and better researched piece.

In some extreme cases, it can even be used by a single writer to make up phony aliases.

I'm certainly taking this column more seriously because my name is at the top of it.

Even though Barron's magazine and its Website would never allow a writer to pen a column without a real byline, I can understand why anonymity might be appropriate in certain instances on a site like Seeking Alpha. For example, why not limit the privilege to instances in which writers are potentially putting themselves or their careers in harm's way by calling out wrongdoing?

I contend that Seeking Alpha, given its large readership, could insist that many more writers use their real names and still attract plenty of copy.

Seeking Alpha also faces another problem but one with no easy solution. It asks that all its writers list whether they are long or short the stocks they are writing about. But there is no way to enforce honest answers. Hoffmann admits that his writers are simply on the honor system. Thus, one has to wonder whether the anonymous writer of a tough article on a company has a short position on the stock, even if he or she says he's not invested.

Then there's the issue of the experience level of many of the writers. Many are college students and at-home investment hobbyists with limited academic qualifications. I wouldn't suggest that a smart, serious college student or hobbyist isn't capable of doing his homework on a stock. But good investment writing involves both analytical skills and writing ability. And people with limited experience are usually at a disadvantage.

In response to some of my questions, Hoffmann says that his site is taking steps to improve the quality of the site, including a new compensation system that rewards quality rather than just page-views. But no steps are being taken at this time to limit the use of anonymity.